A look at life and finance from every angle.
From personal to professional, from family to financial, there are many facets to your life. Yet, each is interconnected. Planning Perspectives is a source of ideas and information to help you make the most of them all, all together.
We’ve gone from “Leave it to Beaver” to “The Brady Bunch” to “Modern Family.” Our favorite TV shows reflect the times we live in. In Canada, according to the 2016 Census, there are single dads, more adult children living with their parents, and more same-sex couples, with and without kids, married and common law than ever before. There are now 9.8 million families in Canada. The need for comprehensive financial and estate planning is more important than ever for traditional and non-traditional families.
Families where one or both spouses have children from a previous relationship, are called blended families, these families face complicated financial decisions in order to preserve family harmony. The spouses need to make sure each other is taken care of, and ensure that the children, stepchildren and future children share in the family wealth in a way that feels fair and equitable.
In 2016 10% of children aged 10-14 lived in a step-family. “Stepmom,” “stepdad,” “half-sister,” and “my dad’s place” are all common phrases that are used every day across Canada. The national average of all children living in lone parent households was 19.2%.
It gets sticky when one spouse wants to provide for the surviving spouse, while also ensuring assets eventually go to his or her children. The survivor spouse may inherit the majority of assets but is under no legal obligation to ensure those assets then pass on to your children later. To avoid this potentially devastating mistake, be sure to make estate planning a priority – even if you’re young.
- Trust is the solution – a formal trust that outlines your wishes to ensure your children, as well as your spouse, are provided for. The terms will vary based on your own family situation, but trusts can help you prescribe exactly how various family members should inherit.
- A pre- or post-nuptial agreement will also go a long way to ensure harmony. Be sure to discuss the final terms with your family so they’ll understand the motivation behind your decisions.
All in the Family
Children become part of the family in any number of ways – birth, adoption, in vitro, posthumous births – and modern families must account for things people hadn’t even heard of 30 years ago. Posthumous births can happen years after the loss of a loved one. Cryopreservation has made it possible for a child to be born even if one or both parents have already passed away. If you or your spouse has done this or is considering it, you’ll want to think through the potential implications. Who would inherit any embryos, for example, and would any resulting child have a claim on your estate? Addressing these sensitive matters may be uncomfortable, but it’s wholly necessary.
And, assisted reproductive technology allows for surrogates and donors to help you expand your family. However, preemptive measures must be taken to avoid estate complications. Contracts are helpful, but proactive estate planning will ensure everyone understands their role and whether they have a right to lay claim to part of your estate later.
No matter how your family grew, you’ll have to think through how you want the children to inherit. What feels equitable and fair to you, to them? The answers are not always simple. Carefully consider decisions that will affect your biological children, stepchildren, adopted children and anyone else you’d like to inherit your estate or your business. As with anything regarding estate planning, document your wishes thoroughly.
Living together without being married raises different challenges. You can’t access spousal and survivor benefits; you aren’t eligible to transfer or bequeath assets to each other without paying certain taxes; and you don’t enjoy protected status as a beneficiary when it comes to pensions, retirement accounts and annuities. As a result, partners must be specifically named as beneficiaries so that your longtime love won’t be left out should the unthinkable happen to you.
- Create a domestic partnership or civil union if your state allows. The county clerk’s office or bureau of vital statistics is a good place to start.
- Title your home appropriately. Joint title with rights of survivorship allows your partner to inherit the home. Alternately, you can specify a percentage of ownership through a tenants-in-common title.
- Give your partner power of attorney over financial and healthcare decisions.
- Draft wills that name each other as heirs. If you think your will might be contested, consider a revocable living trust instead.
- Consider, too, a life partnership agreement. Similar to a pre-nup, this document spells out what happens to your joint assets if the relationship founders.
- Life insurance might help a surviving loved one. A charitable remainder trust could help, too. It can be set up to pay income to your beneficiary for life, and any remaining assets will go to charity.
On Your Own
Whether single, divorced or widowed, being on your own means you’ll face some unique financial challenges, particularly when it comes to deciding who will catch you if you fall. There’s no backup plan if you lose your job or become ill without a caretaker in place. Without children or a spouse, you may not know who should receive your estate, who should be the executor of your will, or who to trust with important decisions should you become incapacitated.
But not knowing doesn’t mean you should do nothing at all. Attention should be paid to your will. If you pass away intestate, or without a will in place, your assets and property may fall to the direction of state statutes and probate courts. If there is no obvious heir, the state could choose related heirs you may not even know.
Start thinking this through now, and decide if you’d prefer to bequeath your estate to particular friends or charities. Decide, too, who you want to benefit from your retirement accounts, and be certain that beneficiary designation forms reflect where you want your assets to go. You can always update your documents later should your life circumstances change.
- Establish a robust emergency fund. Because you don’t have another income to rely on, aim to cover a year’s worth of expenses, and sign up for disability insurance to help you should you no longer be able to work.
- Beef up retirement savings for the same reason.
- Draft a team of pinch hitters. Select an executor for your estate, as well as a health and financial proxy, then, establish durable powers of attorney for them. You’ll need someone caring and competent enough to manage your property and other matters if you are no longer able to do so. If you don’t have family nearby, a trusted friend, member of the clergy or knowledgeable third party may be the right option for you. And make sure they know and understand your wishes, which you can spell out in a living will or medical directive.
- Those without children or a partner to help care for them as they get older rely more heavily on professional caregivers, and must plan for the associated costs. A long-term care policy may fit the bill.
Of course, no estate or financial plan should be set in stone. Planning can be complex, but with the help of a trusted financial advisor, estate attorney, and accountant, guidance can be offered so that your wishes today will be honored tomorrow.
Sources: Financial Planning; Investing Daily; Michigan State University; Time.com; Statistics Canada.
Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.